2014 News Releases

When using a buyer-broker, there’s a better way to get a better deal, Longwood professor finds in real estate research

April 30, 2014

George Jackson

Recent surveys show that as many as one in three homebuyers are making use of a buyer-broker, who represents them in finding just the right house. But the way it works now, there is little incentive to help the buyer get the best price, argues a Longwood University professor.

"Homebuyers and the brokers who represent them very often have an inherent conflict," said George Jackson, associate professor of accounting. "The buyer wants the lowest price possible, which reduces the broker’s commission. So the harder the agent works, the less the reward."

In an article to be published soon in Real Estate Review, Jackson is proposing a solution to get buyers and brokers on the same page. It starts by getting agencies to address fixed percentage commission structures by providing an alternative.

"I call it a double-down," said Jackson. "The idea is to include an option for a bonus commission, in addition to the standard base commission, when the selling price is below a preset amount."

Jackson envisions that the bonus commission would typically be based on a percentage of the difference between the listing price, or perhaps a lower figure, and the contract price. The percentage of this fee, and the point at which it kicks in, would be negotiated in advance by the two parties.

"As it is now, as the buyer benefits, the buyer broker suffers," said Jackson. "In my proposal, the buyer is giving to the broker some of his or her savings so that everyone comes out ahead."

The potential challenge to implementing this option is that brokers are not allowed to draft contracts, so standard percentage commission contracts usually are used. Jackson’s article includes alternative pre-printed clauses that can be reviewed and instituted by agencies to alleviate legal concerns.

In researching his article, Jackson found that not one of 18 states examined had preprinted contracts that included provisions to increase broker remuneration as a reward for negotiating a lower price.

"As a real estate attorney, I have assisted in closing hundreds of transactions and seen too many situations where the broker is not representing the best interests of his or her client," said Jackson, whose license is in his native North Carolina. "It’s a real-life problem with a rather simple solution."